Asymptosis

I’ve been re-reading parts of James McPherson’s Battle Cry of Freedom (thanks Sis!), often billed as the best one-volume history of the Civil War era. While it goes into quite a bit more detail about orders of battle and such than I feel the need for — there’s too much about the war and less than I’d like about the war era — its early chapters do an excellent job of explaining the discord in preceding decades that led up to the conflict (Missouri Compromise, Kansas-Nebraska Act, all that).

But what caught my eye this time was the following passage about the first session of Congress after the southern states seceded (pp. 450-51). Emphasis mine for easy scanning.

The second session of the 37th Congess (1861–62) was one of the most productive in American history. Not only did the legislators revoloutionize the country’s tax and monetary structures and take several steps toward the abolition of slavery; they also enacted laws of far-reaching importance for the disposition of public lands, the future of higher education, and the building of transcontinental railroads. these achievement were all the mroe remarkable because they occurred in the midst of an all-consuming preoccupation with war. Yet it was the war — or rather the absence of southerners from Congress — that made possible the passage of these Hamiltonian-Whig-Republican measures for government promotion of sociaoeconomic development.

… Republicans easily overcame feeble Democratic and border-state opposition to pass a homestead act. …

For years Vermont’s Justin Morrill … had sponsored a bill to grant public lands to the states for the promotion of higher education in “agriculture and the mechanic arts.” … The success of the land-grant institutions was attested by the later development of first-class institutions in many states and world-famous universities at Ithaca, Urbana, Madison, Minneapolis, and Berkeley.

… transcontinental railroad … Freed of the southern incubus, Yankee legislators highballed forward … Lincoln signed the Pacific Railroad Act granting 6,400 acres of public land (later doubled) per mile and lending $16,000 per mile (for construction on the plains) and $48,000 per mile (in the mountains) of government bonds to corporations organized to build a railroad from Omaha to San Francisco Bay. …

… Most Americans in 1862 viewed government aid as an investment in national unity and economic growth that would benefit all groups in society.

By its legislation to finance the war, emancipate the slaves, and invest public land in future growth, the 37th Congress did more than any other in history to change the course of national life. As one scholar has aptly written, this Congress drafted “the blueprint for modern America.”

Do you think we could convince them to secede again?

Just a reminder for all those red-state debt-ceiling hawks out there.

Here’s where the debt came from:

How do you think state budgets would look if all those in-the-red red states had to pay back all the federal money they’ve gotten from the prosperous blue states?

Start this at the three-minute point:

Most people don’t know this fascinating and appalling little bit of legal history. I first learned about it back in 2003, from my friend and colleague Ted Nace’s Gangs of America.

Accounts of it are all over the web, but I’ll try to give you the short story here.

In casual discussions from the bench prior to arguments for Santa Clara County v. Southern Pacific Railroad (1886; a dispute over corporate taxation), Chief Justice Morrison Waite said something obiter dictum — “said in passing” — to the following effect:

…the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations.

The court reporter included this statement in the “headnote” to the case entry in the United States Reports — the record of Supreme Court decisions.

That court reporter was J.C. Bancroft Davis, former president of the Newburgh and New York Railway Company.

Davis checked with the chief justice before including the passage. The justice did not demur, though he did acknowledge:

we avoided meeting the constitutional question in the decision

So the passage — in the headnote, not the decision itself — had no force of law, no value as precedent.

But just three years later it was cited as precedent by Associate Justice Stephen J. Field in Minneapolis & St. Louis Railway Company v. Beckwith. It has been cited repeatedly thereafter.

Corporations are persons within the meaning of the clauses in the Fourteenth Amendment to the Constitution concerning the deprivation of property, and concerning the equal protection of the laws. Santa Clara County v. Southern Pacific Railroad, 118 U. S. 394, and Pembina Mining Co. v. Pennsylvania, 125 U. S. 181, followed.

Field was there for Santa Clara, so he knew it held no precedent value, but he cited it anyway, as if it did. For the grimy details of Field’s conflicts of interest, I’ll direct you here.

I’ve been just as frustrated as other progressives with the Obama administration’s lack of … progressivity. And I’ve been befuddled by why it hasn’t happened. Why didn’t he take the lead on redesigning our health-insurance system, for instance, instead taking the politically bruising months-long course of delegating its drafting to Congress?

Here’s a possiblity.

Obama — constitutional law professor that he is — is at his very core a constitutional conservative. He believes that laws should be created by Congress, not the executive branch. And unlike so-called conservatives on the right, he’s ready to live by those convictions, sacrificing both short term policy goals and political considerations on the altar of those beliefs.

I think it’s quite possible that when the biographies are written, when the historians get a chance to go through the presidential papers and interview key members of the administration, that constitutional conservatism will emerge as at least one of Obama’s defining characteristics as president.

But I’m not sure. What do you think?

Reading the many web comments on my flat tax proposal, I find that many didn’t actually read it (I do go on…), or understand it.

So here’s the short version. Not so short, as it turns out, but I hope easier to grasp quickly.

Unlike the many commenters who failed to do so, please at least skim through before commenting, here or elsewhere. For supporting data and graphics, and sources, see the original post.

The proposal:

1. Tax financial assets of domestic entities, personal and corporate, at an annual rate of 1%, generating revenues somewhere north of $550 billion a year.

2. Eradicate corporate, dividend, and capital-gains taxes, and reduce income taxes by 22–51%.

The implications, and responses to objections:

• Because there would be no taxes on real, productive assets (structures, equipment, software, and the less-measurable assets derived from training, R&D, organization building, etc.) or profits, and personal income would be taxed at a much lower rate, the Financial Assets Tax (FAT tax) would encourage investment spending on real assets (and consumption) instead of hoarding of money in financial assets — living off the economically useless (at least in the long term) “rents” from those holdings.

• In other words, the FAT would discourage saving (storing money in financial assets) in favor of investment spending (and consumption).

• We currently tax worldwide income (at least of natural humans). There’s no reason we can’t tax worldwide holdings; it’s actually much easier. It would end the tax-avoidance scheme of corporations indefinitely “deferring” taxes on un-repatriated offshore income.

• People and companies will still seek to engage in tax fraud by concealing their international holdings, just as they now attempt to conceal their international incomes. Nothing new there, except that income flows are easier to hide than holdings.

• Since financial holdings would be taxed no matter where they are stored, Americans would have incentive (convenience, security, etc.) to store them domestically. (Worth actually reading for those who haven’t: Adam Smith’s “invisible hand” passage.)

• Since corporate profits would not be taxed, multinational corporations would have incentive to repatriate their worldwide profits — something that is actively discouraged by the current tax regime. Constraints on inbound money flows (“foreign” direct investment) would thus be reduced.

• It doesn’t much matter to our country where financial assets reside. It very much matters where real assets reside — they are what constitute our national wealth: our means of producing (and consuming) in the future.

• If there are attractive and lucrative real-investment opportunities in America, money (so-called financial “capital”) will flow into those investments. It doesn’t matter where the money is currently stored.

• Even acknowledging some “friction” in international money flows (though it’s darned hard to discern that friction), businesses consistently tell us that shortage of financing is the very last thing on their list of business constraints. Fact: The supply of credit to the real economy far exceeds the demand. The supply of liquidity is truly oceanic, and over recent decades that supply has expanded at a far faster pace than the demand, with all of the excess going to the financial sector.

• Havens for financial assets like the Bahamas and Lichtenstein, despite their massive holdings of financial assets, do not become economic powerhouses. This is because simply harboring financial assets does not result in formation of real assets.

• The American financial sector would shrink as people moved money to real assets. This would shift some income from real, productive activities in the financial sector (advice, intermediation, bookkeeping, etc.) to other, arguably more productive, activities in the real sector.

• Credit-issuance to the financial sector would decline because financial-sector returns would decline, reducing the systemic “meltdown” risks associated with excessive quantities of debt, especially financial-sector debt.

• Fluctuations in a smaller financial assets market — the sole or at least primary source of so-called “business cycles” — would result in smaller disruptions to the real economy.

• A smaller financial sector, and and an annual tax on private wealth, would over time reduce the concentrations of wealth that result in government capture.

• A smaller financial sector would have less blackmail leverage to demand bailouts when it screws up. Moral hazard and all that.

• Lower returns on financial assets would decrease the incentives for brilliant people to earn their livings from “rent-seeking” in the financial sector, better allocating those human resources to productive, real-sector activities.

• Reducing or eliminating taxes on income and profits would remove or reduce major economic distortions/mis-incentives — discouraging work and entrepreneurship.

• Taxing financial wealth would introduce very little economic distortion, because there is no substitute for wealth, so the demand for wealth is largely inelastic. (Unlike the demand for employment, which is quite elastic because there is an excellent substitute: leisure.)

• Taxing financial assets would to some extent correct for a distortion inherent to the artificial nature of the financial system: real assets decay while financial assets do not, so real assets are at a great disadvantage when competing for “investment.”

• A financial assets tax would be very progressive, because the distribution of financial assets is very regressive. This would help make the overall tax structure (fed, state, local combined) actually progressive, which it currently is not above about $60K or $80K in annual income.

• The wider distribution of wealth and income resulting from a Financial Assets Tax would better harness the “wisdom of the crowds,” cycling more money through consumption purchases to producers who deliver things that people actually want. (Rather than relying on omniscient asset allocation by a small cadre of suppliers and arbitragers.)

• The overall U.S. tax regime would be much more equitable — fairer.

I should add one last thing: we could achieve much the same effect through slightly (1%) higher inflation — making financial assets less valuable and real assets more valuable. But being something of a constitutional conservative like Obama, I think that ideally such a move should be effected by legislative intent, rather than the machinations of unelected technocrats at the Fed. Also — I won’t go through all the technical mechanics here — I think the taxing approach would result in less economic distortion.

Nate Silver: Gay Marriage Opponents Now in Minority – NYTimes.com.

I kid you not.

“I have two grandchildren — Maggie is 11, Robert is 9,” Gingrich said at Cornerstone Church here. “I am convinced that if we do not decisively win the struggle over the nature of America, by the time they’re my age they will be in a secular atheist country, potentially one dominated by radical Islamists and with no understanding of what it once meant to be an American.”

Newt Gingrich talks faith — not affairs — at Cornerstone Church in Texas – Kendra Marr – POLITICO.com.

The OK Trends blog on the OK Cupid dating site is pretty amazing. They pull all their hundreds of millions of pieces of data and suss out amazing facts about how people are, and how they interact. Here’s a beaut re: politics and ideology (Jonathan Haidt, take note):

The Best Questions For A First Date « OkTrends.

My regular readers will know that I’m fascinated by systems with “emergent properties” — systems where a few simple rules that individuals operate by result in complex and surprisingly organized behavior by the group — group properties that don’t seem to have any obvious direct relationship to the simple rules.

Birds flocking is a great example. Each bird has very simple algorithms — “If I’m on the outside of the flock and the bird next to me gets farther away, move toward that bird.” The result is the organized flock movements we’re all familiar with.

This came to mind when reading this Economist leader on gerrymandering of congressional districts in America.

Time to bury Governor Gerry
AMERICAN exceptionalism comes in many forms, but one of the odder ones is the way it sets its electoral boundaries. In every other democracy worthy of the name, independent commissions perform the sensitive and vital task of adjusting boundaries to take account of shifts in population. But in no fewer than 44 of America’s 50 states, it is state legislatures, composed as they are of party politicians, who decide where the lines should be drawn for seats in the House of Representatives in Washington, DC.

Now obviously other democracies don’t have wonderfully perfect political systems. But still, it made me wonder: could that single fact — that one rule-of-the-system — be largely responsible for many of America’s political (hence economic) failings? Could it inevitably — as an emergent property of the system — render our national politics and economic policy-making dysfunctional or destructive?

Maybe it’s just me grasping for simple, single-answer, one-handed explanations and solutions, but could this fact be responsible for many of the ills that plague our economy — the emergence of ever-longer “jobless recoveries” since the 80s, stagnation of middle-class earnings, increasing inequality, etc.? It’s not hard to imagine such a fact resulting in systematically distorted legislative approach to economic issues.

Could the proximate causes that we keep claiming for these problems — globalization, technology improvements, education issues, etc. — be red herrings, with the ultimate cause lying utterly elsewhere? I’m nowhere near being able to answer that question (if it’s even a useful question), but I did turn up a couple of recent papers that illuminate the subject. Both consider whether, and to what degree, federal courts can and should impose rules and restrictions on state-level gerrymandering of congressional districts.

An Interstate Process Perspective on Political Gerrymandering — an anonymous “Note” from the March 2006 Harvard Law Review — outlines four ways of looking at gerrymandering:

It points out that almost all the analysis of gerrymandering to date has been about intrastate stuff. It cites one article on Interstate Effects (“Partisan Gerrymandering and Disaggregated Redistricting” by Adam B. Cox, Supreme Court Review, 2004) and discusses it at length (emphasis mine):

…as Professor Adam Cox has recently pointed out, both academic commentators and the Justices in Vieth have failed to account for crucial conceptual differences between gerrymandering for state legislative districts and gerrymandering for congressional delegations. Unlike the harms from gerrymandered state legislative districts, the full harms from a state’s gerrymander of its congressional delegation can only be determined by looking simultaneously at all other states’ districting plans, as its delegation is only a subset of a larger legislature. With each state controlling the process of drawing its own congressional district lines,a state’s political gerrymandering might impose costs well beyond its borders.

…gerrymanders should be alarming because they result from “interstate process” defects. …the legislative process that produces it fails to account adequately for outsiders’ preferences — outsiders who suffer very real harms from gerrymandering. These harms include being governed by potentially unresponsive politicians, having a House of Representatives with an “unfair” partisan balance, and feeling compelled to alter the political processes of one’s own state.

The interstate process perspective thus echoes the familiar economic concept of externalities.

…the concept of an interstate process problem helps justify rigorous judicial intervention in these constitutional areas.

…one state’s political gerrymandering can impose significant costs on out-of- state interests. Yet those out-of-state individuals are not participants in the political process that produces the gerrymandering state’s districting plan.

…Since those harms are uniquely visited upon outsider states, in-state residents likely will have no reason to prevent those harms.

Thus political gerrymandering may actually be a more worrisome species of interstate discrimination than the kinds of discrimination remedied by existing law.

…the people of the entire nation, not just the people of an individual state, have an interest in each state’s selection of federal representatives. Political gerrymandering ignores that interest…

I’ve saved the unfortunate news — from Cox — for the end:

[Whether] courts should continue to police congressional partisan gerrymanders turns importantly on the answer to empirical questions—about how likely it is that injuries will aggregate substantially, and how likely it is that courts will improve the situation. These questions are underexplored. …the legal literature rarely asks whether state-by-state manipulation regularly leads to substantial levels of national partisan bias. While the political science literature has engaged the question a bit more directly, it is somewhat divided on the answer.

He cites two articles from the political-science literature that do address the question — both co-authored by…Cox.

How does your state determine congressional districts?

Michael Bloomberg:

The simple fact is, this building is private property, and the owners have a right to use the building as a house of worship, and the government has no right whatsoever to deny that right. And if it were tried, the courts would almost certainly strike it down as a violation of the U.S. Constitution.

Should government attempt to deny private citizens the right to build a house of worship on private property based on their particular religion? That may happen in other countries, but we should never allow it to happen here.

I would add:

1. The moderate muslim community, which uniformly disowns and decries terrorism in the name of Islam as despicable and contrary to their religion, is the most powerful voice there is against those terrorists. There are few more effective things we can do that empower, embrace, and encourage that voice.

2. The voices against the mosque are raised not in prospect of any future good, but in angry reaction to past evils. Vengeance, revenge, should never serve as the spur to our actions, because the urge for vengeance — no matter how innate and irresistible it is to the human character — is always about looking backward, never forward.

Retribution — rooted in cold, clear, calculated reasoning and intended to prevent future evils — is often essential and inescapable. But vengeance-driven actions are almost inevitably counterproductive.

That’s what I think, anyway.